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National Bank of Azerbaijan announces priorities of monetary policy for 2009

06 January 2009 14:02 (UTC +04:00)

The NBA said its monetary policy will aim at ensuring macroeconomic stability and balance in 2009.
The bank said in a statement that the international organizations forecast the global financial crisis to go on, the global economic growth slow down, halving the flow of global investments. The deepening crisis could pose several risks for all developing countries, including Azerbaijan.
Thus, the liquidity crisis in the global financial system might limit the flow of external finance to the economy oil prices might be low in connection with the declining demand.
In these circumstances, international organizations recommend substantially easing macroeconomic policies, including fiscal and monetary policies to confront the global recession.
â€œIt is a prerequisite to implement a flexible macroeconomic regulation so as to prevent the negative impact of global risks for the non-oil sector, employment and income level. From this perspective, it is essential to consolidate and coordinate all directions of macroeconomic policy with the aim of achieving economic development and financial stability. NBA exchange rate policy will be flexibly adjusted depending on external factors in order to achieve the targets. This policy will support the macroeconomic equilibrium in the long-term period and protect the competitiveness of the economy. National Bank will increase the flexibility of monetary policy instruments to ensure the necessary level of liquidity in the economy. Depending on the macroeconomic situation, parameters if the interest corridor will be flexibly adjusted and the range of instruments for refinancing the banking system will be expanded,â€ said the statement.
National Bank said that the country has sufficient global liquidity capacity which is important in supporting the development of the real sector of the economy and limiting the negative impact of global risks to economic activity and employment.
â€œTo do this, it is all above necessary to support priority sectors which creating conditions for the development of multisectoral areas. In this regard, the attention should be focused on the improvement of the mechanism of financing small and medium-sized enterprises, food security, support for the banking sector, construction and development of the mortgage market and other priorities to reduce the impact of global risks to the national economy.
The focus will be on the financial stability of the banking system in the face of increasing global risks.
The policy will support the credibility and stability of the banking system. National Bank will continue its policy to preserve liquidity of the banking system at an adequate level.
To make efficient use of excess liquidity in the banking system, confidence mechanisms will be promoted in the interbank money market. Attention will also be focused on building domestic banking policy of reservation, the management of assets quality, maintaining the capital adequacy at a safe level, to identify risks in advance mode. In addition, the state program for the development of the payment system will ensure creation of a single integrated area of electronic payments, acceleration of the development of electronic commerce and improvement of the cashless turnover in the short term.
As part of improving the legal framework of banking system, it is planned to amend the Law on the National Bank of Azerbaijan and the Law on Banks, as well as enacting the Bill on the non-bank lending institutions and the Bill on the Credit Bureaus,â€ said the statement.
According to the NBA, the growth rate of money supply decreased by two-fold in 2008 compared to 2007 to 25% during the 11 months of last year. However, growth in monetization of the economy continued to rise and the broad money supply-GDP ratio reached 50% in the non-oil economy. The two-currency basket regime (the U.S. dollar and the euro) was successfully implemented by market participants since late March.
This regime has increased the influence of the National Bank on the weighted average rate (the nominal effective rate) of the manat against the currencies of partner countries.
As a result, in 2008 the nominal effective rate strengthened by more than 12% which was an important factor in reversing inflation import from partner countries. Exchange rate policy also ensured stability in the foreign exchange market, and the exchange rate of the manat strengthened by 5.2% against the U.S. dollar in 2008.
In order to support the sources of liquidity in the economy amid the global economic recession, the NBA adjusted its monetary policy in October, 2008.
The central bank cut the key rates three times to 8% from 18%, reduced mandatory reserve requirements on banksâ€™ liabilities in national and foreign currencies to 6% from 12% and lifted the 5% mandatory y reserve requirements on banksâ€™ external liabilities.
According to the NBA statistics, assets grew by 47% loan portfolio by 48%, deposits by 23% in 11 months of 2008.
Despite the fulfillment of large external liabilities in 2008, banks continued lending loan, which reached AZN 1.9 billion in September-November alone.
â€œBanks have sufficient liquid assets to fulfill both external and internal obligations. Liquid assets of banks are about equal to the size of external debt. Liquid assets of banks account for about 87% of deposits, while immediate liquidity exceeds the required level by three times (82%). The ratio of liquid assets to current liabilities is 90%,â€ said the statement.
The bank capitals grew by 49% to AZN 16 billion for 11 months of 2008 and the capital adequacy ratio was 19% (prudential requirement is 12%). Return on assets was 2.6% and return on capital 20% in banking system in Azerbaijan during 11 months.